How do you use an annuity purchase calculator?


Quick Answer

An annuity purchase calculator estimates how much income you can expect from investing a specific amount of money into an annuity, or it can tell you how much to invest to receive a desired level of income during retirement, explains New Retirement. The first case is useful when you know the exact amount you can invest, and the second is useful for covering an expected income gap between your expenses and your Social Security income or other income during retirement.

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Full Answer

A lifetime annuity is a type of investment that guarantees an income stream for the rest of the retiree's life, states New Retirement. Financial advisers often recommend lifetime annuities over term annuities, which only guarantee payment for a specific number of years and have the potential to run out during a long retirement. The investor purchases an annuity with a lump sum payment, then receives his retirement income stream from this investment.

When choosing an annuity, it is important to consider factors that can affect a long retirement, such as inflation and the potential for a spouse to outlive the retiree. Some annuities include an annual cost-of-living adjustment to cover rising expenses during retirement, reports New Retirement. Married couples may prefer an annuity that provides lifelong benefits for a surviving spouse.

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